S&P Hedge Fund Gives Back 0.85% in April

May 5, 2005 (PLANSPONSOR.com) - Seven out of nine
hedge fund strategies, as measured by the S&P Hedge Fund
Index, were down in April as the index gave up 0.85% during
the month, Standard & Poor's reported.

The largest losses occurred in the S&P
Directional/Tactical and S&P Arbitrage Indices
as many of the factors that contributed to economic
bullishness such as low inflation, surging corporate
profitability and accommodative economic policy are now
predicted to weaken from previous levels, S&P
said.

“Increased investor concern over financing
conditions is producing a difficult investment
environment for credit related securities,” said
Charles Davidson, Senior Hedge Fund Specialist at
Standard & Poor’s, in a news release.
“S&P research shows a general trend in
portfolios toward higher cash balances and a more
defensive position higher in the capital
structure.”

The S&P Directional/Tactical Index retreated by
1.48% in April as all three of its broad underlying
strategies – Macro, Managed Futures and Equity Long/Short
– experienced varying levels of negative returns, the
news release said. Macro managers in April were hurt by
range bound trading of energy prices, the decline in
equity markets and uncertainty over the decoupling of the
Chinese Yuan to the US dollar.

The S&P Managed Futures Index gave
up 6.51% for the month as the majority of the assets
in this strategy are managed by medium to long
trend-followers who were adversely affected by several
trend reversals. Gains in financial futures,
especially those inEurope, were offset by losses in
currency, energy and metals positions.

A decline in the majority of world equity markets,
with the exception ofAustralia’s commodity driven
market and a few others, negatively impacted equity
long/short managers during the month, the news release
said Small-caps, particularly in the United States,
were hit the hardest in April. Small-cap
performance is key to many managers in the space as they
often search for long ideas in this less researched area
of the capitalization range, while hedging market risk in
the more liquid mid- and large-cap area, S&P
said. As a result, managers have begun to reduce
their net market exposure. The net result, as
indicated by the S&P Equity Long/Short Index, was a
loss of 1.93% in April.

The S&P Arbitrage Index lost 0.61% in April led
by poor performance in Convertible Arbitrage. Many
managers in this strategy noted that this was the most
difficult month in several years, but see opportunities
for value-based investors as some bond names trade below
fair value. The post GM spread blowout in high
yield, which represents a high percentage of converts,
also hurt valuations.

The S&P Event-Driven Index gave back 0.49% for
the month as its three underlying strategies declined in
April. Special Situations and Distressed were
hurt by a general widening of spreads and increased
investor caution. Merger Arbitrage was negatively
impacted by concerns over the ability of private equity
and other financial buyers to access reasonable financing
as spreads widened.